An agreement among euro finance ministers imposes years of spending cuts on the currency bloc‘s fourth largest economy while sending investors a message that Spain is trying to make sure it does not follow Greece into financial collapse.
Prime Minister Mariano Rajoy won a more relaxed 2012 deficit goal, after his unilateral announcement that Spain would miss the previous target upset the European Commission and undermined the new fiscal pact-binding members to budget control.
The 17-nation Eurogroup agreed on 5.3% and both sides stuck to the goal of reaching the EU’s deficit limit of 3% in 2013. That will be a big stretch.
Some economists say that even with the new leeway, the stringent budget discipline imposed by the Commission, backed by more fiscally conservative states such as Germany, is impossible for Spain to achieve and could be counterproductive.
Almost a quarter of all Spaniards are out of work, bank loans to struggling companies are on hold, domestic demand is in retreat and exports are lagging. Further spending cuts will fall mainly on the highly indebted regions, which are expected to begin slashing funding for the treasured health and education sectors.
With one young person under 25 out of two unemployed, and a labour reform giving hard hit companies easier lay-off terms, some commentators expect at least another million to join the five million jobless.
reporter
Park Sae-jin
swatchsjp@ajunews.com